Do you know how much we build apartments in Warsaw? The owner of the development group UDI Group about money, corruption and crooked Prague
photo: UDI Group, like others/UDI Group owner Radek Menšík
INTERVIEW “Politicians can blackmail all investors in a manner similar to ours in Žižek. It is again a purposefully created space for corruption. And there would be dozens of such examples,” said UDI Group owner Radek Menšík in an interview with PrahaIN.cz.
You do business in Poland, Hungary, Serbia, Czech Republic. Why did you miss Slovakia?
Our company operated in Slovakia twenty years ago. However, even during the time of former Prime Minister Mečiar, it was regularly stolen from me. After this experience, although we are looking for investment opportunities in the capitals of all surrounding countries, including Slovakia, we are very cautious in the case of Bratislava. Moreover, the market here is very similar to the one in the Czech Republic – small, overheated with prices that are very inflated, far from the real income of the inhabitants. At the moment, Slovakia is not one of the main targets of our investments. In addition to the countries you mentioned, we also do business in Latin America and we are looking at Western Europe.
From a business point of view, where was it most difficult for you to establish yourself?
It seemed that it had to be Poland, which is extremely open and the market is very competitive. But that’s not the case. It clearly shows here that whoever can, can. In Poland, we are building one of our larger projects with 960 apartments. We are selling on the extreme market a project designed by a leading Polish architectural studio at half the price of Prague and we are doing very well. Paradoxically, the most difficult thing for us is to establish ourselves in the Czech Republic, or more precisely, not in the Czech Republic, but in Prague, where the market is very distorted and only lends itself to selected developers. But abroad, we got used to the fact that we don’t have to make friends with politics, as is customary in Prague and as was shown, for example, in the Dosimeter case. In Poland, Hungary or Serbia, but also in Latin America, if our project meets the spatial plan and all standards and legal requirements, we build.
Classic Ursus in Warsaw.
Can you compare over the years how complicated communication with the authorities in individual countries is?
A good example is the first stage of our Polish Classic Ursus project in Warsaw, where we spent less than two months in negotiations with the authorities. During that time, the local authorities managed to process the entire procedure and assess the public interest within the first stage of the project, which has 114 apartments. In Prague, the same thing would take about six years. We have projects in Prague where we are in accordance with the spatial plan and even after eight years we have not been issued a building permit. This is not a difference of one, but two orders of magnitude. And of course, this is prescribed in the prices of apartments. Thanks to the policy of an artificially maintained bubble, there are so few of them on the market that their prices have risen to double those of Warsaw, Budapest or Belgrade.
That doesn’t sound optimistic.
Of course, the worst are the citizens who do not have the chance to buy apartments. It is not that there is a need for a high investment demand for apartments in Prague, nor is there any significantly greater opposition from neighbors or associations against new construction. The so-called The NIMBY effect (not in my back yard – simply build anywhere, just not in my neighborhood) is common everywhere in the world. But nowhere do we encounter such flagrant violations of laws and abuse of power by politicians and non-compliance with deadlines by authorities. Moreover, politicians abroad realize that it is very short-sighted to accommodate the NIMBY effect in populist politics. Even those voters who live today and do not want it built in the neighborhood will have children in 10 or 15 years and will need more. And what about those who today cannot afford housing in Prague and because of that have to live in Central Bohemia and drive day in and day out and burden the roads that Prague pays for?
Okay, we’re talking in general terms. In general, the office is the scarecrow of most entrepreneurs. Corruption associated with it. Did you come across her?
Corruption does not have to be just the well-known shoe box or caper plastic bag or redistribution of orders at cocaine parties. That’s just the tip of the iceberg. The problem with us is mainly that the overgrown state, the crooked legal system and the endless amount of all kinds of regulations and ordinances create a huge space for corruption. Politicians deliberately created it so that they would have the opportunity to do so. A good example is our project in Žižkov, where we ran out of patience and after two years of negotiations, we also filed a criminal complaint against an unknown perpetrator, but the essence of the matter is aimed at local politics.
why?
In our case, they misused their power in an exemplary way when, after they failed against our project in the ordinary proceedings, they used a legal trick and had the municipality take care of the neighboring land, through which we need to connect the network to our house. They did it just to not give us the approval to run the networks. At the same time, we secured municipal approval even before we bought the land precisely in order to exclude the possibility that someone would abuse this form against our project.
Multifunctional object Žižkov
However, according to its internal rules, the municipality does not conclude a future contract with the investor before the zoning decision is issued. Why do you think the city has the rules set up so awkwardly? That the city solved this problem for the first time? All projects in the city are connected to the networks through sidewalks owned by the city, i.e. through city land. In a similar way, politicians can blackmail all investors. It is again a purposefully created space for corruption. And there would be dozens of such examples…
The development of the economy and world events are not helping family investments, which certainly includes housing. Do you feel the same way?
Housing, and above all investment in apartment buildings, is very stable in every era and in every country. However, as I mentioned, the investment demand for housing in Prague is the same as in other metropolises where we do business. For example, in Warsaw, investing in housing also makes much more economic sense. The entry cost, i.e. the price of an apartment, is half as much here as in Prague, while the rent from which you repay the investment is, on the contrary, higher. The return on such an investment is significantly faster in Warsaw than in Prague. If, of course, we leave aside speculative investments for the further growth of real estate prices. However, they are significantly overvalued in Prague, even by 40 percent according to the latest CNB data. So here we are already on the edge of risk.
If, as people after school, you had to decide between, for example, an expensive mortgage and saving money in bonds or time deposits, where the interest rates are now high, what would you choose?
Here you are pitting two worlds against each other. A mortgage, i.e. depositing future profits in real estate, does not solve the same problem as bonds, where you deposit current profits in some financial instrument and, on the contrary, deal with their future yield. Mortgages are taken out by people who have saved only part of their funds, but currently need to solve housing problems. Of course, at the time of mortgages, long-term bank money was also used by people who used it to finance the purchase of an investment apartment. With current mortgages, I think this segment has basically disappeared. On the contrary, people who don’t care about housing save money in various financial investment instruments, they just want and want to value their money.
We’ve already talked about it, but I still can’t do it. Why does a meter of a new apartment cost about 50-70 thousand in Warsaw and once as much in Prague?
In Warsaw, people have very similar incomes to Prague, mortgages are similar there, the demand for investment apartments is perhaps even greater there, because Warsaw is a bigger market and hosts many more multinational companies, and therefore there are more expats who can afford to buy investment apartments. The only big difference, which accounts for why you can buy housing in Warsaw for half the price in Prague, is that, while in the last ten years in Prague, around 3-5,000 apartments have been permitted per year, in Warsaw it is more than 20,000. As a result, there is an excess of supply over demand in the primary market of new apartments in Warsaw, and this is pushing prices down. Of course, this state also greatly cultivates the offer of developers. In Warsaw, we really have to try to sell the apartments, and this is reflected in the architectural quality of the projects and the quality of the buildings, in the amount of greenery and public space around the houses, etc. In Prague, the situation is completely opposite. If in a city where officially 1.3 million, unofficially 1.6 and maybe even more people live, only 5000 new apartments are put on the market every year, then it is completely insufficient. The demand is many times higher. And if you have something that is in demand, you can afford to ask for a price that is many times higher. It’s just that what’s in short supply is expensive. It’s that simple.
Multifunctional object Žižkov
How do you rate the development environment in the Czech Republic? I’m referring to Penta, Central Group, Sekyra and the like.
The development environment in the Czech Republic is very significantly distorted by the conditions prevailing on the market. I don’t want to evaluate a competitor’s business. It is a matter of how individual companies treat their brand. I do business on the international market and I am used to a transparent environment abroad. Due to the higher profit that the developers in Prague clearly achieve, I am not going to risk the good name of the company by meeting politicians in apartments for cocaine parties. Then I could probably build without problems in Prague as well. However, I would much prefer the city to treat all developers equally. Let them act in accordance with the law, without discrimination, let them set clear rules applicable to all, which will ensure equal conditions. In my opinion, abroad, where I do business, it would not be possible for the Deputy Mayor for Territorial Development to use the projects of a developer who is known to have bought land for these projects under very non-transparent conditions from state companies or even from the city itself at one-fifth or even lower prices compared to market prices.
How do you expect the economic development of the CNB’s policy, which is decisive for interest rates on both mortgages and, of course, savings?
The CNB is only in a serious situation and does not really have the ability to significantly influence it. I am convinced that if we had adopted the euro a long time ago, today inflation would be half here and loans would also be cheaper. The transnational character of our business gives us a great advantage in that we have a large part of loans in euros, which these “Czech” fluctuations.
And lastly: What about the negative and positive perception of the bureaucratic infrastructure in the metropolis of the Czech Republic?
Just take the upcoming election. In Prague, we elect more than 1,100 representatives. That’s an awfully high number. I don’t think anywhere in the world, that is, in the civilized world, so many politicians are elected. In Prague, there are only about a thousand inhabitants per elected district representative, in Munich it is double and in Warsaw even four times. Prague has 57 districts, Warsaw with a higher population has 18 districts. Do you think that the ratio applies that the more politicians, the better the representation of the interests of the population? I do not think so. I would rather say that the more politicians, the more money they need to divert. Unfortunately, that’s how it is.